SMSF Association Media Release
The SMSF Association is calling for a measured approach to the introduction of the proposed retirement income covenant for superannuation fund trustees.
In response to Treasury’s recent position paper, the SMSF Association says it welcomes measures that seek to increase member engagement with their superannuation and, importantly, planning for their retirement.
However, it is essential that any measures introduced are practical, fit for purpose and do not create administrative burden or significant additional cost.
The Association’s submission points out that the proposed model, in practice, will not apply in a similar manner across the sector. This is a product of the nature, size and structuring differences that exist across the large APRA funds compared with SMSFs. When drafting the legislation, and any associated regulations, careful consideration will be needed as to how it will operate within the respective environments.
Association CEO John Maroney says the sector has learnt “invaluable lessons” from the operation and function of the investment covenant, and these should be heeded when introducing a retirement income covenant.
“For SMSF trustees there does appear to be an element of overlap between the proposed retirement income covenant and the investment strategy covenant on investment composition and risk and having to address some of these concepts separately may cause confusion or duplication.
“We appreciate the policy intent, but are of the view, that including, for example, the longevity and risk consideration alongside a robust investment strategy, could accomplish this objective.
“There is also a question about the role and obligations of SMSF auditors when it comes to checking the trustee’s compliance with the retirement income covenant.
“We would be concerned if this new covenant results in auditors having to extend the scope of their audit to matters that they would not ordinarily be expected to consider.
“Broadening the scope of an SMSF audit will increase the complexity of the audit process along with the time and cost incurred.”
Mr Maroney adds that although we have some concerns about the practical operation of the retirement income strategy for SMSFs, we do see opportunities for the SMSF sector.
“There are several components unique to SMSFs that could be included by way of educational materials to help guide the retirement planning conversation.
“For example, the guidance material for SMSFs could encourage SMSF trustees to consider the life cycle of the SMSF and its appropriateness for the members.”
“Matters that could form part of the SMSF trustee’s compliance with the retirement income covenant include the trustee’s plan for loss of capacity and documenting whether valid enduring powers of attorney are in place.
“We think encouraging this type of conversation would be of greater value to SMSF trustees and would promote active engagement, trustee and member education, and considered retirement planning.
“However, the pathway to compliance with the covenant should not be onerous, increase red tape, cost or complexity for SMSF trustees.”